Economics for Tres Amigas
Market designs for Tres Amigas: How about trilateral market coupling?
Tres Amigas is a proposed project to link the Eastern Interconnection, Western Interconnection, and the Texas Interconnection (ERCOT) by means of a high-tech three-way superconducting AC-DC-AC connection. You might wonder what economics has to say about such an unprecedented and innovative proposal.
Consider this summary from Ralph Turvey, “Interconnector Economics,” Energy Policy, 34 (2006) 1457–1472:
Interconnectors yield undoubted benefits, but whether their likely level would justify their probable cost is in most cases subject to great uncertainty. Benefits from an existing interconnector could be maximised if a single system operator was responsible for both unit commitment and dispatch in the connected areas. But when there is no such single operator, securing optimal utilisation of an interconnector presents great difficulties, even with a single DC link, as the phenomenon of two-way nominations attests. The vastly more complex problem of achieving an approximation to optimal use of multiple AC links raises additional difficulties….
In the Tres Amigas case we can rule out the idea of “a single system operator responsible for both unit commitment and dispatch in the connected areas.” Theoretically ideal. Ain’t gonna happen....
More thoughts on economic issues related to the Tres Amigas project, an ambitious proposal to connect the Western, Eastern, and Texas electric grids via a three-way high tech transmission link located in eastern New Mexico. (Earlier: Tres Amigas intro and Economics for …).
Europeans have had several years of experience connecting separate national power markets via transmission links, and years of experience with inefficient use of those links. Problems in inefficient use arise in part due to the difficulty in coordinating power transactions with matching transmission transactions. The current best solution to the problem has been to employ a concept of “market coupling.”
Market coupling is a mechanism used to integrate electricity markets in different physical areas while requiring minimal changes to the local arrangements. Market coupling replaces a two-step process: a daily explicit auction of transmission capacity followed by the day-ahead energy markets. Market coupling integrates transmission allocations and energy trading, removing many of the inefficiencies at the day-ahead stage.
Market coupling allows exchanges to remain separate legal entities with individual trading platforms, contracts and clearing; a single regional market is created by optimising the use of the already existing transmission capacity....